consultancy services; the provision of education and training services; the provision of repair and maintenance services
TENAGA NASIONAL BERHAD PROPOSED SUBSCRIPTION OF 1,089,052,288 EQUITY SHARES1 REPRESENTING A 30.0% EQUITY INTEREST IN GMR ENERGY LIMITED FOR USD300 MILLION
1. INTRODUCTION Tenaga Nasional Berhad (“TNB” or “The Purchaser”) wishes to announce that it has today entered into a conditional Subscription Agreement to subscribe for new equity shares in GMR Energy Limited (“GEL” or the “Issuer”) through its wholly owned subsidiary, Power and Energy International (Mauritius) Ltd (“PEIML” or the “Subscriber”), representing a 30.0% equity interest in GEL on a fully diluted basis, for a total cash consideration of USD300 million (“Subscription Price”). In furtherance to the execution of the Subscription Agreement between TNB, the Subscriber, the Issuer together with GMR Infrastructure Limited, GMR Renewable Energy Limited and GMR Energy Projects (Mauritius) Limited (the “GMR Parties”) for the Proposed Subscription, TNB also wishes to announce that the Subscriber has today signed a Shareholders’ Agreement with the GMR Parties.
2. INFORMATION ON ENTITIES 2.1.
Information on the TNB Parties 2.1.1
TNB TNB was incorporated in Malaysia on 12 July 1990 as a public company under the name of Tenaga Nasional Berhad, and was listed on the Main Board (now known as the Main Market) of Bursa Malaysia Securities Berhad on 28 May 1992. The authorised share capital of TNB is RM10,000,001,501 divided into 10,000,000,000 ordinary shares of RM1.00 each, One (1) Special Rights Redeemable Preference Share of RM1.00, 1,000 Class A Redeemable Preference Shares of RM1.00 each and 500 Class B Redeemable Preference Shares of RM1.00 each, of which RM5,643,611,172 divided into 5,643,611,171 ordinary shares of RM1.00 each and One (1) Special Rights Redeemable Preference Share of RM1.00 have been issued and fully paid up. TNB is primarily involved in the business of generation, transmission, distribution and sale of electricity. Through its subsidiaries, TNB is involved, among others, in the manufacture of transformers; high voltage switchgears and cables; the provision of consultancy services; the provision of education and training services; the provision of repair and maintenance services and research and development.
2.1.2
PEIML PEIML is a company incorporated under the laws of the Republic of Mauritius on 24 March 1998 as a private company limited by shares whose registered office is at c/o CIM CORPORATE SERVICES LTD, Les Cascades Building, Edith Cavell Street, Port Louis, Republic of Mauritius. PEIML has been established as an investment holding company and its stated capital is USD20,382,902.
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Based on the Subscription Price of USD300 million converted to INR at an exchange rate of INR/USD = 66.65. Subject to change based on the prevailing INR/USD exchange rate at the time of Completion.
2.2.
Information on the GMR Parties 2.2.1. GEL GEL is a company incorporated under the laws of India whose registered office is at Skip House, 25/1, Museum Road, Bangalore – 560 025, India. GEL is part of GMR Infrastructure Limited (“GIL” or “GMR Group”), which is one of the largest diversified infrastructure conglomerates in India. At the time of TNB’s investment, GEL will comprise a portfolio of best-in-class power assets, with a total capacity of c.4,630 MW. This will include an operating capacity of c.2,300 MW and in the pipeline, capacity of c.2,330 MW under construction/development assets. In addition, GEL has a balanced fuel mix of coal (2,000 MW), gas (623 MW) and renewable sources of hydro (1,980 MW) and solar energy (25 MW). Aside from GMR Infrastructure Limited and certain of its subsidiaries (together, the “GMR Shareholders”), the other major shareholders of GEL include Temasek Holdings Private Limited, an investment company based in Singapore (held through Claymore Investment (Mauritius) Pte. Ltd.), and a consortium led by IDFC Bank Limited (the “IDFC Consortium”), a finance company in India providing services ranging from infrastructure financing, infrastructure development, investment banking and project finance. GEL is currently controlled by GIL. The paid-up capital of GEL is 1,694,996,895 equity shares of Indian Rupee 10 each and 12,930,653 preference shares of Indian Rupee 1,000 each. 2.2.2. GIL GIL is a company incorporated under the laws of India whose registered office is at Skip House, 25/1, Museum Road, Bangalore – 560 025, India. GIL is a world renowned infrastructure developer that has an excellent track record of creating mega infrastructure projects in India and overseas. GIL owns, develops, operates and manages two (2) major airports in India (Delhi & Hyderabad) and one (1) in Cebu in The Philippines, 15 power generation projects, nine (9) modern highways, one (1) double rail track line of eastern dedicated freight corridor and is currently developing two (2) Special Investment Regions in the south of India. With an asset base of over USD9 billion, GIL is one of the largest infrastructure development companies in India. GIL has a strong track record of successfully working with top-tier Malaysian corporates. It was a Joint Venture (“JV”) partner with Malaysia Airports Holdings Berhad in the modernization of Delhi International Airport. Malaysia Airports Holdings Berhad is also a JV partner with GMR, and holds an 11% equity interest, in GMR Hyderabad International Airport Limited, a company which was incorporated to develop, operate and manage the Rajiv Gandhi International Airport in Hyderabad, India. GMR was also an equity partner and Engineering, Procurement & Construction and Operations & Maintenance (“O&M”) contractor alongside United Engineers (Malaysia) Berhad for the Tambaram-Tindivanam and Tuni-Anakapalli road projects in India. In addition, GMR was a JV partner with Petroliam Nasional Berhad in the Island Power Project in Singapore, GIL’s first independent power project outside India. 2.2.3. GMR Renewable Energy Limited GMR Renewable Energy Limited (“GREL”) is a company incorporated under the laws of India whose registered office is at Skip House, 25/1, Museum Road, Bangalore – 560 025, India. GREL owns Gujarat Wind Power Plant which is a wind-based power plant with a gross capacity of 2.10 MW located in Moti Sindhodi Village, Kutchh District, Gujarat. The Plant commenced commercial operations in July 2011.
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2.2.4. GMR Energy Projects (Mauritius) Limited GMR Energy Projects (Mauritius) Limited (“GEPML”) has been duly incorporated under the Companies Act, 2001 of the Republic of Mauritius as GMR Energy Investments (Mauritius) Limited on 7 December 2010 as a private limited company. The name of the company was changed from GMR Energy Investments (Mauritius) Limited to GMR Energy Projects (Mauritius) Limited on 24 January 2011. GEPML’s registered office is situated at Abax Corporate Services Limited, 6th floor, Tower A, 1 CyberCity, Ebene, Mauritius. GEPML has been established as an investment holding company which holds investments of the GMR Group in the energy sector across various countries. The promoters of GEPML are GIL and GMR Energy (Global) Limited.
3. SALIENT TERMS OF THE SUBSCRIPTION AGREEMENT The salient terms of the Subscription Agreement inter alia include the following: 3.1.
Transaction scope TNB, through the Subscriber, will acquire a 30.0% equity interest in a portfolio of best-in-class power assets of GEL by subscribing to new equity shares (the “Subscription Shares”) in the Issuer.
3.2.
Proposed Subscription Price The Subscription Price shall be paid by TNB upon satisfaction of all conditions precedents to the Subscription Agreement (“Completion”).
3.3.
Completion Completion is subject to conditions customary to a transaction of this nature including applicable regulatory approvals from Malaysia and India.
4. SALIENT TERMS OF THE SHAREHOLDERS’ AGREEMENT The salient terms of the Shareholders’ Agreement inter alia include the following: 4.1.
Shareholding Composition After The Completion The shareholding composition of GEL after Completion will be as follows: Number of equity shares Shareholder GREL GIL GEPL Others Subtotal - GMR Shareholders TNB through PEIML Claymore Investment (Mauritius) Pte. Ltd. IDFC Consortium Welfare Trust for GMR Group Employees Total
1,189,031,553 536,894,545 150,912,717 18,720 1,876,857,535 1,089,052,288 448,227,120 201,282,400 15,000,000 3,630,419,343
Equity proportion 32.75% 14.79% 4.16% 0.00% 51.70% 30.00% 12.35% 5.54% 0.41% 100.00%
Note: Based on the Subscription Price of USD300 million converted to INR at an exchange rate of INR/USD = 66.65. Subject to change based on the prevailing INR/USD exchange rate at the time of Completion.
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4.2.
Governance rights TNB will have the right to nominate directors to the boards of GEL and certain key subsidiaries based on its percentage shareholding. It will also have the right to nominate candidates for certain management positions at GEL if it maintains a shareholding of at least 20% in GEL.
4.3.
Reserved matters So long as TNB holds a stake of at least 10% in GEL, TNB will have a veto right (subject to certain exclusions) in respect of a broad range of corporate matters that apply to GEL and its in-scope subsidiaries which span key areas including approval of business plan, approval of significant expenditure and transactions, corporate structure and constitutional matters.
4.4.
Pre-emption and anti-dilution rights TNB has pre-emptive rights on any future issuance of equity or equity-linked securities in GEL. If TNB does not exercise such rights, the issuance may not be made at a price that is less than the Subscription Price paid by TNB.
5. BASIS AND JUSTIFICATION OF SUBSCRIPTION PRICE The total Subscription Price of USD300 million was arrived at on a willing buyer willing seller basis after taking into consideration the discounted cash flow of GEL, as well as detailed due diligence conducted by TNB and its appointed consultants and advisers on all technical, legal, commercial and financial aspects.
6. SOURCE OF FUNDING The Proposed Subscription will be funded through a combination of internally generated funds and/or borrowings. The breakdown of the source of funding will be determined later and will depend on, amongst others, TNB’s cash reserves and future funding requirement.
7. LIABILITIES TO BE ASSUMED BY TNB TNB will be providing a guarantee to each of the GMR Parties for the performance by the Subscriber of all of its obligations pursuant to the Subscription Agreement and Shareholders’ Agreement, including payment of the Subscription Price. TNB will also be providing limited fundamental warranties to the GMR Parties. Aside from this, there are no other liabilities including contingent liabilities to be assumed by TNB arising from the Proposed Subscription. TNB will not consolidate the liabilities of GEL.
8. RATIONALE AND PROSPECTS OF THE PROPOSED SUBSCRIPTION The Proposed Subscription is in line with TNB's 5-Year International Expansion Roadmap, which is targeted to secure new generation capacity internationally. The strategic rationale of the Proposed Subscription is as follows: (i)
Positive and improving fundamentals of the Indian power sector India has a favorable economic outlook and stable political landscape, coupled with favorable demographics, a rapidly growing energy sector and cultural and strategic fit with Malaysia, creating an attractive investment opportunity. India has a large and supplyconstrained power market with demand spurred by economic growth and TNB will be able to capture the long-term growth of the Indian electricity market.
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(ii)
Investment in a sizeable diversified power portfolio in India with meaningful operational upsides GEL has a sizeable power portfolio comprising an operating capacity of c.2,300 MW and in the pipeline, capacity of c.2,330 MW under construction/development assets. In addition, the portfolio has a balanced fuel mix of coal (2,000 MW), gas (623 MW) and renewable sources of hydro (1,980 MW) and solar energy (25 MW).
(iii)
Visibility on cash flows from strong operational portfolio contracted under long term Power Purchase Agreements (“PPAs”) GEL has 83% of its operational capacity contracted under long-term PPAs for the next five (5) years, providing a stable, de-risked cash flow profile.
(iv)
Exclusive partnership with best-in-class strategic and financial partners GIL has been identified as a suitable strategic partner for TNB in India, given its strong position as one of the largest infrastructure development companies in India with businesses spanning energy, airports, transportation and urban infrastructure. TNB will also have the opportunity to partner with Temasek Holdings Private Limited and IDFC Bank Limited, both of which are long-standing, committed, top-tier financial partners of GIL. This partnership will come with the opportunity to create a leading Indian energy platform with a diversified and balanced fuel mix of coal, gas, hydro and solar, with significant opportunities to further develop renewable energy assets, in particular solar. There is also potential for TNB and GEL to establish an O&M partnership to capture attractive market opportunities as well as further expand the platform via organic development and inorganic acquisitions.
9. RISK FACTORS RELATING TO THE PROPOSED SUBSCRIPTION TNB together with its appointed advisors have carried out a comprehensive due diligence and risk assessment on the Proposed Subscription. The identified risks associated to the Project have been assessed and mitigated appropriately.
10. FINANCIAL EFFECTS OF THE PROPOSED SUBSCRIPTION 10.1. Issued and Paid-Up Share Capital The Proposed Subscription will not have any effect on the issued and paid-up share capital of TNB. 10.2. Substantial Shareholders’ Shareholdings The Proposed Subscription will not have any effect on the Substantial Shareholders’ shareholdings of TNB. 10.3. Net Assets and Gearing Based on the latest audited consolidated financial statements of TNB for the Financial Year ended 31 August 2015, the Proposed Subscription is not expected to have a material effect on the net assets and gearing of TNB. 10.4. Earnings per share ("EPS") The Proposed Subscription is expected to be EPS accretive to TNB by Financial Year 2018.
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11. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND PERSONS CONNECTED WITH THEM None of the Directors or Major Shareholders of TNB and/or persons connected with them has any interest, direct or indirect, in relation to the Proposed Subscription.
12. DIRECTORS’ STATEMENT After having considered all aspects of the Proposed Subscription, the Board of Directors of TNB is of the view that the Proposed Subscription is in the best interest of TNB, fair, reasonable and on normal commercial terms and not detrimental to the interest of minority shareholders.
13. APPROVALS FOR THE PROPOSED SUBSCRIPTION The Proposed Subscription does not require the approval of TNB's shareholders. However, the Proposed Subscription is subject to the following approvals from regulatory authorities: (a)
the obtainment of permission of Bank Negara Malaysia for the Proposed Subscription by TNB of the Subscription Shares;
(b)
the obtainment of permission of the Ministry of Finance of Malaysia for the Proposed Subscription by TNB of the Subscription Shares; and
(c)
the obtainment of a decision from the Competition Commission of India approving the transaction.
14. HIGHEST PERCENTAGE RATIO PURSUANT TO PARAGRAPH 10.02(G) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD (“MMLR”) The highest percentage ratio applicable for the Proposed Subscription pursuant to paragraph 10.02(g) of the MMLR is 2.5% based on the latest audited consolidated financial statements of TNB for the Financial Year ended 31 August 2015.
15. ESTIMATED TIME FRAME FOR COMPLETION The Proposed Subscription is expected to be completed by the fourth quarter of the calendar year 2016 subject to the fulfillment of all conditions precedents.
16. ADVISORS Credit Suisse acted as Exclusive Financial Advisor to TNB. Slaughter & May and Khaitan & Co acted as legal counsels to TNB. KPMG India Private Limited acted as transaction due diligence and regulatory and commercial advisor to TNB.
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